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Bank warns Qatar's property 'bubble' may burst
The real estate "bubble" could burst in Qatar in the same way as it has in Dubai, Kuwait investment bank Markaz has warned.
Figures published in a report by the the investment bank on Sunday show that a high percentage (38 percent) of Qatar’s population work in the real estate and construction sectors - a key indicator of a property bubble.
The findings warrant a “need for a close watch” - especially in the current global economic climate that has had a negative impact on Dubai's property industry - the report concluded.
"We...suggest that the growth in Qatar’s property market needs to be closely monitored to avoid a Dubai like situation in the future," it said.
The warning comes just days after Colliers International in Qatar predicted that house prices in the Gulf state would fall by 10 percent this year.
And in a separate report Global Investment House revealed it expected rents for office and retail space to decrease, due to a slowdown in demand.
However, Markaz added that the amount of equity demanded by banks for loans in Qatar made speculation expensive, a situation that would act as a cushion against the impact on banks in the event of a downturn.
Census data shows that 48 percent of Dubai’s one million residents worked in the property industry in 2005.
This figure rose to an estimated 50 percent in 2007 - excluding a workforce of 300,000 that commutes to the emirate from Sharjah.
The same data for 2007 shows that 38 percent of the Qatari population were employed in the sectors.
The study also found evidence of a less significant property bubble in Bahrain, and a potential bubble being dispelled in Kuwait as a resust of action by the governemnt in 2008 to curb lending on real estate.
The move prompted the property market to correct less dramatically than in Dubai, Markaz noted.
“Our study finds evidence of a bubble in Bahrain although it had a less significant impact on the overall economy than in Dubai, while Kuwait avoided it with a less painful correction,” a team of analysts wrote in a research note.
Meanwhile, property prices in Oman and Saudi Arabia have not risen enough to create a bubble, despite census figures showing 40 percent of Oman's population was employed in the real estate and construction sectors in 2007.
An analysis of the Abu Dhabi and Sharjah markets was not possible due to lack of data, the report added.
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Comments 1-2 of 2
Posted by Venkat, Kuwait City, Kuwait on 12 February 2009 at 10:34 UAE time
Increase in money supply will lead to rises in price levels, not necessarily an asset price bubble. One needs to look at the credit extended to asset price speculators/investors to evaluate bursting of a bubble driven by credit.
The reasoning to use the extent of population working in the sector is to highlight the extent of activity in the sector in GCC countries. US/UK had bubbles because they had internal demand to be catered and they intended to finance them with unworthy credits. Whereas in Dubai, the demand had to come from outside and the financing went to the local speculators. Putting all these things together will give a clear picture.
Posted by paul, Dubai, UAE on 9 February 2009 at 14:37 UAE time
Surprises me that Qatar and other countries that have exhibited exactly the same signs of a bubble still believe they have dodged the credit crunch.
We heard this in Dubai all last year until the shoe finally dropped.
You need to look at money supply - if it increased hugely as real estate prices did, then you have a bubble that will pop as credit dries up. The percentage of the population employed in construction is not really relevant, though it does make the effect of a popping bubble much more severe. The UK and US had bubbles, they had less than 10% of the population employed in construction. It did not stop the drying up of credit from impacting house prices or taking down the wider economy.